SACRAMENTO—Today, Senator Cathleen Galgiani (D-Stockton) has introduced a bill that would extend tax relief on forgiveness of mortgage debt for some homeowners.
Senate Bill 907 will provide much needed state income tax relief to borrowers who have had mortgage debt forgiven by their lender. Many families throughout California have experienced financial trouble over the last few years and received loan modification as a result. Those same families cannot afford to pay additional taxes on money they never received.
“This is a common-sense measure to avoid additional fiscal burdens on those who are facing financial uncertainty as a result of the economic crisis and often unemployment,” said Galgiani. “Taxpayers who have lost their homes could face an additional income tax liability of thousands of dollars or more.”
After a loan modification or short sale of a home, a bank can cancel or forgive thousands of dollars of an individual’s mortgage debt. Federal and State income tax laws generally define cancelled debt as a form of income. Without additional legislation to exclude cancelled debt, many Californians may be taxed on income they never received.
“This bill was truly born in our community,” Galgiani said. “The Central Valley has been ground zero for home foreclosures. This legislation will help prevent excessive hardship to working families. While some areas of California have recovered, home values in many communities throughout the Central Valley are still lagging.”
SOURCE: Senator Cathleen Galgiani